High Court Of Bombay
Amit Hemendra Jhaveri vs. Union Of India & Anr.
Section 95, 95(iii), 88, 245D, 22D, 9, 12A, 8, 3
Asst. Year 1993-94 to 1995-96
M.S. Sanklecha & N.M.Jamdar, JJ Writ Petition No. 1027 OF 1999
13th October, 2015
Counsel appeared:
Amit Jhaveri, CIT for the Petitioner: Anil Singh, Suresh Kumar & Afroz Shah, Advs. for the Respondent. JUDGMENT:
1. This petition filed under Article 226 of the Constitution of India challenges:
(a) three orders dated 12 February 1999 by which the petitioner’s declaration under the Kar Vivad Samadhan Scheme, 1998 (the KVSS 1998) is rejected in respect of the Assessment Years 1993-94, 1994-95 and 1995-96; and
(b) the Constitutional validity of Section 95 of the KVSS, 1998 .
2. The petition was admitted on 2 May 2000 at which time, the following order was passed:
“Rule only on the question of constitutionality of KVSS, 1998. Respondents waive service. Interim reliefs refused. However, if the petitioner succeeds in Writ Petition, it will not be open to the department to plead that declaration under KVSS cannot be granted as scheme has expired. Expedited. Liberty to department to apply.â€
Therefore the only issue for our consideration is issue (b) viz. Constitutionality of Section 95 of the KVSS, 1998. Factual Background:
The petitioner filed his return of income for the Assessment Year 1993-94 declaring a return of income of Rs.2.30 lakhs. The Assessing Officer by an assessment order dated 28 March 1996 assessed the same at Rs.43.89 lakhs. For the Assessment Year 1994-95, the petitioner filed a return of income declaring an income of Rs.43.76 lakhs and the same was assessed to Rs.3.46crores by an assessment order dated 31 March 1997. So also for the Assessment Year 1995-96, the petitioner filed a return of income declaring an income of Rs.9.28lakhs and the same was assessed to Rs.46.59lakhs by an assessment order dated 31 March 1998. Being aggrieved, the petitioner filed appeals against all the three aforesaid assessment orders dated 28 March 1996, 31March 1997 and 31 March 1998 for the Assessment years 1993-94, 1994-95 and 1995-96 respectively. As on 1Septemeber 1998, the appeal of the Petitioner for the Assessment Year 1993-94 was pending before the Income Tax Appellate Tribunal, and the appeals of the Petitioner for the Assessment Years 1994-95 and 1995-96, were pending before the Commissioner of Income Tax (Appeals).
The Finance Act, 1998 introduced the KVSS, 1998 with effect from 1 September, 1998 providing for settlement of tax disputes pending as on 1 September, 1998. Under the KVSS 1998, the tax dispute inter alia to be settled in respect of direct tax was the amount of tax, penalty or interest determined on or before 31 March 1998 and remaining unpaid as on the date of the filing a declaration in the prescribed form. The declaration in the prescribed form had to be filed by a person invoking the benefit of KVSS 1998 on or after 1 September 1998 but before 31 December 1998. The scheme provided that on the date of filing of the declaration, there must be a pending dispute with regard to the tax arrears which is being sought to be settled under the KVSS 1998. The settlement of tax dispute was mutually beneficial measure, both to
the revenue and assessee, inasmuch as it benefited the revenue to realize its assessed dues not paid, in an expeditious manner and offers the assessee an opportunity to pay the disputed liability at an discounted rate coupled with an immunity from imposition of penalty and prosecution. The KVSS 1998, inter alia, provided for a declaration to be made in the prescribed form by the assessee who seek to settle the dispute in the aforesaid manner to the designated authority thereunder. In case the designated authority accepted the declaration within the sixty days as provided, by grant of a certificate determining the tax arrears and the declarant paid the tax at the rate of 30% of the disputed income, the tax dispute stood settled. However, the KVSS 1998 itself provided that where a declaration made was found to be false, it was to be presumed that such a declaration was never made by the assessee.
5. The Petitioner filed three declarations dated 31 December 1998 under the KVSS 1998 in the prescribed form to the designated authority seeking to settle his disputes, pending before the authorities under the Act for Assessment Years 1993-94, 1994-95 and 1995-96. In each of the declarations made in the prescribed form, the petitioner had declared that he is not disqualified under Section 95 of the KVSS 1998 from making the declaration for settlement.
6. It appeared to the designated authority that as prosecution for offence under Chapter XVII of the Indian Penal Code had been launched against the petitioner, he may not be entitled to the benefit of KVSS 1998. In the above view, the petitioner was called upon to show cause why the benefit of KVSS 1998 should not be declined. The Petitioner in response to the above, by a letter dated 1 February 1999 informed the designated authority that his declaration would not be hit by Section 95(iii) of the KVSS 1998. This on the ground that the disqualification therein would apply where proceedings as specified under Section 95(iii) of the KVSS 1998 are instituted and not initiated. It was submitted by the petitioner that as no charge-sheet has yet been filed, the proceedings against him had not yet been instituted.
7. However the designated authority did not accept the petitioner’s contention. Therefore by three separate orders all dated 12 February 1999, the designated authority did not accept the declarations of the petitioner for the Assessment years 1993-94, 1994-95 and 1995-96 holding that the petitioner’s application was barred by Section 95(iii) of the KVSS
1998.
8. Being aggrieved, the Petitioner filed this Petition on the two issues as indicated above viz: challenge to the three orders dated 12 February 1999 of the designated authority and the constitutional validity of Section 95 of the KVSS 1998. This Court admitted the petition only on the issue of constitutional validity of Section 95 of the KVSS 1998 and did not entertain the challenge to the orders dated 12 February 1999. In any case the Apex Court in CBI Vs. Sashi Balsubramanian while considering Section 95 (iii) 1. 2006(13) SCC 252 of the KVSS 1998 has held that the term ‘instituted’ would not mean filing of charge-sheet but would also include mere filing of a complaint. Accordingly, the view of this Court in not admitting the Petitioner’s challenge to letter dated 12 February 1999 stands approved by the Apex Court in Sashi Balsubramain (supra). Submissions :
9. As the petitioner was appearing in person, we had appointed Mr. Chinoy, learned Senior Counsel as an amicus curiae. Mr. Chinoy, learned Senior Counsel graciously agreed and rendered valuable assistance. We place on record our appreciation. Mr. Chinoy submitted that unequals are grouped together in Section 95 and for that reason Section 95 of KVSS 1998 is discriminatory and liable to be questioned. He, however, pointed to the consequences of the upholding the challenge will lead to re-opening the entire scheme and unsettle decided issues.
10. The petitioner-in-person in support of the petition submitted as under:
(a) A taxing statute like any other Act of Parliament is subject to equality clause provided under Article 14 of the Constitution of India. Section 95 of the KVSS 1998 falls foul of Article 14 of the Constitution of India by having excluded a class of people from its benefit without any nexus to the object or purposes of the Act. This is so when admittedly the object of the KVSS 1998 is to enable the Revenue to collect the amounts which are held up in disputes before the various authorities under the Act as well as before the Courts.
(b) Section 95(iii) of the Act is arbitrary in as much as it discriminates in respect of persons against whom a mere complaint has been filed in the criminal court alleging offences punishable under Chapter IX or Chapter XVII of the Indian Penal Code. At this stage, the complaint is merely on account of suspicion. The subsequent discharge of an accused person is not taken into account. This leads to an innocent person being excluded from the benefit of KVSS
1998. Thus the petitioner is denied the equal protection of opportunity for availing the benefit of KVSS 1998 only on account of arbitrary exclusion.
(c) The classification under Section 95(iii) of the KVSS 1998 seeking to exclude a class of assessees from it’s benefits because prosecution under Chapter IX or XVII of the Indian Penal Code, Foreign Exchange Regulation Act, 1973, Terrorists And Disruptive Activities (Prevention) Act, 1987, Prevention of Corruption Act, 1988, Narcotic Drugs and Psychotropic Substance Act, 1985 has been initiated. This classification has no nexus to the object or purpose for which the KVSS 1998 was enacted. Undisputedly the KVSS 1998 has been enacted to collect revenue which is stuck up in disputes. Thus the classification is violative of Article 14 of the Constitution of India.
(d) The classification under Section 95 (iii) of KVSS 1998 is arbitrary and violative of Article 14 of the Constitution of India as it deprives a person as benefit of KVSS 1998 for minor crimes falling under the Chapter XVII of the Indian Penal Code. At the same time, a person against whom prosecution has been instituted for serious crimes like murder, etc. is not deprived of the benefit of KVSS 1998. Similarly, it also excludes a class of persons against whom proceedings for enforcement of civil liability has been instituted. These civil proceedings have no nexus to the object and purpose of the Act.
11. Per contra, the learned Additional Solicitor General in support of the Constitutionality of KVSS 1988 submits as under:
(a) The KVSS 1998 is a part of Finance Act, 1998 by which the Parliament has enacted the same with the object of settling the pending dispute between the assessee and the State. These pending disputes has resulted in large amount being blocked up in the resolution of the dispute. Therefore, KVSS 1998 seeks to settle litigation. In the process, the
Parliament in its wisdom has sought to exclude certain category of assessee as specified in Section 95 of the KVSS 1998 from the benefit of the Scheme of Settlement including those involved in social-economic crimes. This classification of various classes of assessee not being entitled to the benefit of KVSS 1998 is founded on an intelligent differentia between those excluded from the benefit of KVSS 1998 and to those the benefit have been offered having a rational nexus to its object.
(b) The Petitioner himself undisputedly falls within a Section 95(iii) of the KVSS
Therefore Section 95(iii) of KVSS 1998 does not fall of foul of Article 14 of the Constitution of India;
1998, in as much as a prosecution has been instituted against the petitioner under Chapter XVII of the Indian Penal Code prior to his filing a declaration under the KVSS 1998. The rationale for excluding a person against whom prosecution has been launched for the offences specified in Section 95 (iii) of the KVSS 1998 is to ensure that the people who have generated illegal money are kept out of the KVSS 1998 so as not to make available such class of persons from the benefit of immunity. Similar classification had been done by the State in its Bear Bond Immunity and Exemption Act,1981. The aforesaid Act was a subject matter of challenge in R. K. Garg v/s. Union of India2 and the same was rejected
by the Apex Court;
(c) The classification done by the Parliament keeps all persons against whom proceedings have been initiated in terms of Section 93(iii) of the KVSS 1998 prior to the filing of the declaration by the assessee under the KVSS are being kept out irrespective of the result of the prosecution/litigation. The Parliament is entitled in its wisdom to have classified persons against whom proceedings have been initiated/ instituted, to be excluded from the benefit of the KVSS 1998. This cut off date provided by the Parliament cannot be said to be arbitrary so as to 2 1981(4) SCC 675 violate Article 14 of the Constitution of India;
(d) The classification done by the Parliament cannot be declared unconstitutional merely because in the wisdom of the Petitioner or of the Court the classification could have been better.
Statutory Provision:
12. For an appropriate consideration of the contesting submission it would be necessary to reproduce Section 95 of the KVSS 1998 which is the subject of challenge before us. Section 95 of KVSS 1998 reads as under: “95 – Scheme not to apply in certain cases – The provisions of this Scheme shall not apply
(i) in respect of tax arrear under any direct tax enactment:
(a) in a case where prosecution for concealment has been instituted on or before the date of filing of the declaration under section 88 under any direct tax enactment in respect of any assessment year, to any tax arrear in respect of a person who has been convicted for concealment on or before the date of filing the declaration;
(b) in a case where an order has been passed by the Settlement Commission under sub-section (4) of section 245D of the Income Tax Act or sub-section (4) of section 22D of the Wealth Tax Act, as the case may be, for any assessment year, to any tax arrear in respect of such assessment year under such direct tax enactment;
(c) to a case where no appeal or reference or writ petition is admitted and pending before any appellate authority or the High Court or the Supreme Court on the date of filing of declaration or no application for revision is pending before the Commissioner on the date of filing declaration;
(ii) in respect of tax arrear under any indirect tax enactment
(a) in a case where prosecution for any offence punishable under any provisions of any indirect tax enactment has been instituted on or before the date of filing of the declaration under section 88, in respect of any tax arrear in respect of such case
under such indirect tax enactment;
(b) in a case where show-cause notice or a notice of demand under any indirect tax enactment has not been issued;
(c) in a case where no appeal or reference or writ petition is admitted and pending before any appellate authority or the High Court or the Supreme Court or no application for revision is pending before the Central Government on the date of declaration made under section 88;
(iii) to any person in respect of whom prosecution for any offence punishable under Chapter IX or Chapter XVII of the
Indian Penal Code, the Foreign Exchange Regulation Act, 1973, the Narcotic Drugs and Psychotropic Substance Act,
1985, the Terrorists and Disruptive Activities (Prevention) Act, 1987, the Prevention of Corruption Act, 1988, or for the purpose of enforcement of any civil liability has been instituted on or before the filing of the declaration or such person has been convicted of any such offence punishable under any such enactment;
(iv) to any person in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974;
Provided that
(a) such order of detention being an order to which the provisions of section 9 or section 12A of the said Act do not apply, has not been revoked on the report of the Advisory Board under section 8 of the said Act or before the receipt of the report of the Advisory Board; or (b) such order of detention, being an order to which the provisions of section 9 of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the review under sub-section (3) of section 9, or on the report of the Advisory Board under section 8, read with sub-section (2) of section
9 of the said Act; or
(c) such order of detention, being an order to which the provisions of section 12A of the said Act, apply, has not been revoked before the expiry of the time for, or on the basis of, the first review under sub-section (3) of that section, or on the basis of the report of the Advisory Board under section 8, read with sub-section (6) of section 12A, of the said Act; or
(d) such order of detention has not been set aside by a court of competent jurisdiction;
(v) to any person notified under sub-section (2) of section 3 of the Special Court (Trial of Offences Relating to
Transaction in Securities) Act, 1992. Legal Position:
13. A challenge to a legislation on the touch stone of Article 14 of the Constitution of India has to meet the tests succinctly put by the Supreme Court in State of Maharashtra v/s. Indian Hotels and Restaurants Association3 –. The test set our are as under:
“ Is the impugned legislation ultra vires Article 14?
106:-Before we embark upon the exercise to determine as to whether the
impugned Amendment Act is ultra vires Articles 14 and 19 (1)(g), it would be apposite to notice the well-established principles for testing any legislation before it can be declared as ultra vires. It is not necessary for us to make a complete survey of the judgments in which the various tests have been formulated and reaffirmed. We (3 2013 (8) SCC 519) may, however, make a reference to the judgment of this Court in Budhan Choudhary v/s. State of Bihar – AIR 1955 SC 191
-wherein a Constitution Bench of seven Judges of this Court explained the true meaning and scope of Article 14 as
follows:
“5 .. .. .. .. It is now well-established that while Article 14 forbids class legislation, it does not forbid reasonable classification for the purposes of legislation. In order, however, to pass the test of permissible classification two conditions must be fulfilled, namely (i) that the classification must be founded on an intelligent differentia which distinguishes persons or things that are grouped together from others left out of the group, and (ii) that differentia must have a rational relation to the object sought to be achieved by the statue in question. The classification may be founded on different bases; namely, geographical, or according to objects or occupations or the like. What is necessary is that there mus be a nexus between the basis of classification and the object of the Act under consideration. It is also well-established by the decisions of this Court that Article 14 condemns discrimination not only by a substantive law but also by a law of procedure. 107:-The aforesaid principles have been consistently adopted and applied in subsequent cases. In Ram Krishna Dalmia v/s. S. R. Tendolkar – AIR 1958 SC 538, this Court reiterated the principles which would help in testing the legislation on the touchstone of Article 14 in the following words :
“(a) that a law may be constitutional even though it relates to a single individual if, on account of some special circumstances or reasons applicable to him and not applicable to others, that single individual may be treated as a class by himself;
(b) that there is always a presumption in favour of the constitutionality of an enactment and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles;
(c) that it must be presumed that the legislature understands and correctly appreciate the need of its own people, that its laws are directed to problems made manifest by experience and that its discriminations are based on adequate grounds;
(d) that the legislature is free to recognise degrees of harm and may confine its restrictions to those cases where the need is deemed to be the clearest;
(e) that in order to sustain the presumption of constitutionality the Court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation; and
(f) that while good faith and knowledge of the existing conditions on the part of the legislature are to be presumed, if there is nothing on the face of the law or the surrounding circumstances brought to the notice of the court on which the classification may reasonably be regarded as biased, the presumption of constitutionality cannot be carried to the extent of always holding that there must be some undisclosed and unknown reasons for subjecting certain individuals or corporations to hostile or discriminating legislation.â€
14. It is also a settled position in law that a tax legislation like any other legislation is subject to a rigour of Article 14 of the Constitution of India (Chhotalal Jethabhai Patel v/s. Union of India – AIR 1962 SCC 1006 and Aashirwad Films v/s. Union of India – 2007 (6) SCC 624). However, a tax legislation dealing with economic activities have to be judged with greater latitude and the legislature should be allowed greater play in the joints than say a law relating to right of free speech. We can do no better than to reproduce the observation of the Apex Court in R. K. Garg (supra) wherein paragraph 8 has been observed as under:
“ 8:-Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or straight-jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The Court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v Doud where Frankfurer, J said in his inimitable style:
In this utilities, tax and economic regulation cases, there are goods reasons for judicial self-restrains if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times, the judges have been overruled by events – self limitation can be seen to be the path to judicial wisdom and institutional prestige and stability.
The Court must always remember that “legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetryâ€; that exact wisdom and nice adaption of remedy are not always possible and that “judgment is largely a prophecy based on meagre and uninterpreted experienceâ€. Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The courts cannot, as pointed out by the United States Supreme Court in Secretary of Agriculture v/s. Central Roig Refining Company, be converted into tribunals for relief from such crudities and inequities. There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any legislature to anticipate as it by some divine prescience, distortions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The Court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues.â€
(emphasis supplied)
Consideration:
15. Keeping the above broad parameters in mind, we shall now examine the Petitioner’s challenge to Section 95 of the KVSS 1998. At the very out set, it must be pointed out that the Petitioner is a person who admittedly falls within the exclusion clause namely Section 95 (iii) of the KVSS 1998. Secondly, KVSS 1998 is a benefit which is accorded to the assessee and is a deviation from strict implementation of a taxing statute. It is in the aforesaid circumstances, that the Petitioner has assailed the Constitutional validity of Section 95 of KVSS 1998. It must also be clarified that though the prayer in the Petition is to declare the entire Section 95 of the KVSS 1998 as unconstitutional in view of violation of Article 14 of the Constitution of India, before us, the submission made by the Petitioner was only in respect of challenge to subsection
(iii) of Section 95 of the KVSS 1998. Therefore, it is in the context of the above submission that we will be examining the Petitioner’s challenge. The Petitioner submits that the classification done under Section 95 (iii) of the KVSS 1998 is unreasonable and arbitrary. The exclusion of class of people listed out in Section 95 (iii) of the Act and the reasons of it failing the test of Article 14 of the Constitution of India as submitted by the Petitioner are as under:
(i) Person in respect of whom a complaint has been filed in a Criminal Court, alleging offences under Chapter IX and XVII of the Indian Penal Code. This in view of the fact that the complaint in the Criminal Court is filed on mere suspension and if ultimately the person so excluded is discharged even then a benefit of KVSS 1998 would not be applicable. Thus this is arbitrary;
(ii) The various categories listed out in Section 95 (iii) being excluded from the benefit of KVSS 1998 are person who are being prosecuted under Indian Penal Code, TADA, FERA, Prevention of Corruption Act, 1995, Narcotic Drugs and Psychotropic Substance Act, 1985 when the same has no nexus to the object of collecting more revenue;
(iii) A person against whom prosecution has been lodged for minor crime as provided under Chapter XVII of the Indian Penal Code is excluded by virtue of Section 95 (iii) of the KVSS 1998 from its benefit while a person against whom prosecution is lodged for serious crimes like murder etc., is not deprived benefit of KVSS 1998. This itself is evidence of the arbitrary nature of the exclusion having no nexus to the objection of the Act to collect Revenue; and
(iv) Section 95 (iii) of the KVSS 1998 also excludes the class of persons against whom proceedings for enforcements of Civil liabilities has been instituted from the benefit of KVSS 1998. This is completely arbitrary and in the face of Article 14 of Constitution of India as according to the Petitioner, this would cover a civil dispute being in the nature of suit filed between one party against another. This exclusion has no nexus to the objects of the Act and thus is arbitrary to Article
14 of the Constitution of India.
16 A common thread running through the petitioner’s challenge to Section 95(iii) of the Act is that the classification made therein is not based on intelligible differentia and the differentia does not bear a rational relation to the objective/ purpose of the legislation. The Apex Court in the case of Sashi Laxman Kale v/s. Union of India4 -has held that the purpose or the object of the legislation can be found out by looking at the circumstances which prevail when the law was passed including the necessity of the law. It is, therefore, permissible to look at the statement of objects/ reasons while introducing the Act and also the historical facts and surrounding circumstances to ascertain the mischief sought to be remedied. In the present case, the objective/ purpose of the KVSS 1998 can be discerned from the speech of the Finance Minister while introducing the Finance Act, 1998 as set out by the Apex Court in Union of India v/s. NITDIP Textiles Processors (P) Ltd.5 at paragraphs 17 and 18 as under:
“17:-The object and purpose of the Scheme is to minimize the litigation and to realize the arrears of tax by way of settlement in an expeditious manner. The object of the Scheme can be gathered from the Speech of [1990 (4) SCC 366,
2012 (1) SCC 226] the Finance Minister, whilst presenting the 1998-1999 Budged:-“Litigation has been the bane of both direct and indirect taxes. A lot of energy of the Revenue Department is being frittered in pursuing large number of litigations pending at different levels for long periods of time. Considerable revenue also gets locked up in such disputes. Declogging the system will not only incentivise honest taxpayers, it would enable the Government to realise it’s reasonable dues much earlier but coupled with administrative measures, would also make the system more user-friendly. I therefore, propose to introduce a new scheme called Samadhan. The Scheme would apply to both direct taxes and indirect taxes and offer waiver of interest, penalty and immunity from prosecution on payment of arrears of direct tax at the current rates. In respect of indirect tax, where in recent years the adjustment of rates has been very sharp, an abatement of 50% of the duty would be available along with waiver of interest, penalty and immunity from prosecution.â€
18:-The Finance Minister, whilst replying to the Debate after incorporating amendments to the Finance (No.2) Bill, 1998 made a speech dated 17-7-1998 (1998) 232 ITR (St) 11. The relevant portion of the Speech, which highlights the object or purpose of the Scheme, is extracted below:-“The Kar Vivad Samadhan Scheme has evoked a positive response from a large number of organizations and tax professionals. The Hon’ble Members of Parliament have also taken a keen interest in the Scheme. The lack of clarity in regard to waiver of interest and penalty in relation to settlement of tax arrears under the indirect tax enactments is being taken care of by rewording the relevant clauses of the Finance Bill. I have also carefully considered the suggestions emanating from various quarters including the Standing Committee on Finance to extend the scope of this Scheme so as to include tax disputes irrespective of the fact whether the tax arrears are existing or not. As you have seen from the Scheme, it has two connected limbs – ‘kar’ and ‘vivad’. Collection of tax arrears is as important as settlement of disputes. The Scheme is not intended to settle disputes when there is no corresponding gain to the other party. The basic objective of the Scheme cannot be altered.â€
(emphasis supplied)
In fact the Supreme Court has repeatedly held that KVSS 1998 was introduced with a view to collect revenue and avoid litigation (Sushila Kumari v/s. CIT 2000 (2) SCC 697, Killick Nixon Ltd v/s. CIT 2003 (1) SCC 145). In fact, in CIT v/s. Shatru Saliyana Jadeja6, the Apex Court held that the objective of the KVSS 1998 was to settle tax arrears in litigation at a substantial discount. This is so, because it was noticed that a large number of cases were pending at recovery stage, the scheme, therefore, was in substance a recovery scheme to put an end to all pending disputes between the Revenue and the Assessee whether before the authority or before the Court.
17. The State has filed an affidavit indicating that the policy / intent of KVSS 1998 to exclude offenders specified under Section 95 (iii) of the Act from the benefit of the KVSS 1998. The benefit of KVSS 1998 was not to be extended to all those who have, inter alia, income/ property which had been acquired by illicit 6 (2005 (7) SCC 294) means. The benefit of KVSS 1998 was to all those whose income/ property are acquired through legally permissible process but not disclosed. The KVSS 1998 provides for immunity from penalty and prosecution to those who make a valid declaration there under. However the Parliament in its wisdom does not want to extend the benefit of KVSS 1998 to those persons who had acquired income / property by illicit means and if the same was a subject of prosecution as listed out in Section
95 (iii) of the Act. It
would therefore be noticed that there is a policy underlying the exclusion under Section 95 (iii) of the KVSS 1998. Therefore, the differential classification made by Parliament has a nexus to the objective of the Act which was extended by way of benefit to all assessees who have disputes with the Revenue pending before the authority under the Act or in the High Court. However, the aforesaid benefit under the KVSS 1998 was not available to a person against whom proceedings have been instituted under the Indian Penal Code, Prevention of Corruption Act, 1988, TADA, FERA and Narcotic Drugs and Psychotropic Substances Act, 1985. It would therefore be noticed that the class of people who have been left out of the benefit of KVSS 1998 by virtue of section 95 (iii) thereof are those against whom proceedings/ prosecutions have been initiated for various social-economic crimes as listed out therein. The objective of the Act is to provide a mutual benefit i.e. not only to collect revenue which is locked in litigation which will augment the State’s resources but also benefit the tax payer who on settling the dispute pays tax only at 30% of the declared income along with immunity from penalty and prosecution. Once a classification as pointed out by the Revenue is found to be based on reasons, the mere fact that the Petitioner or the Court is of the view that the classification could be better, would not entitle the Court to interfere with the classification as done by the legislature. The role of the Court is limited only to ensure that the classification is not arbitrary i.e. absence of intelligible differentia having a nexus to the object of the Act. The Courts are not in any way concerned whether the classification that is made in the Act is the best possible in the available circumstances. This is purely within the domain of Parliament.
It is first contended by the Petitioner that ousting a person from the benefit of KVSS 1998 in respect of whom a complaint has been filed in a Criminal Court, alleging offences under Chapter IX and XVII of the Indian Penal Code is arbitrary. This it is submitted is in view of the fact that the complaint in the Criminal Court is filed on mere suspicion and if ultimately the person so excluded is discharged even then the benefit of KVSS 1998 would not be available. The legislation does not factor in the likelihood of honourable discharge. Thus it is arbitrary according to the Petitioner. The Parliament in its wisdom has provided a window period during which an offer of settlement under KVSS 1998 is kept open subject to certain conditions being satisfied on the date of filing of the declaration. This providing of cut off days as held by the Supreme Court in NITDIP Textile Processors (supra) would always result in same disadvantage to some individuals but in economic legislations there has to be some free play on the joints. The parliament in its wisdom did not desire to make the offer of settlement available to those under a shadow of culpability in respect of socio–economic offences. This wisdom of Parliament of excluding pending prosecution from the benefit of KVSS 1998 is not for us to question so long it does have a nexus to the object of the KVSS 1998. This nexus to the object exists. Furthermore, the Apex Court in the case of Sashi Balsubramaniam (supra) has held that benefit of the KVSS 1998 Scheme is not to be extended to those against whom a complaint is pending, therefore, this condition cannot be held to be arbitrary.
It is next contended by the petitioner that the various categories listed out in Section 95 (iii) of KVSS 1998 excluding them from the benefit of KVSS 1998 are persons who are being prosecuted under Indian Penal Code, TADA, FERA, Prevention of Corruption Act, 1995, Narcotic Drugs and Psychotropic Substance Act, 1985. This according to the petitioner has no nexus to the objective of collection of more revenue. This is not correct for the reason as pointed out above, the object of the KVSS 1998 is to collect the revenue which is otherwise stuck up in disputes in respect of persons who are not being prosecuted for offences which are likely to be illegal/illicit income at the cost of the society. This benefit of KVSS 1998 would also grant immunity to such persons from penalty and prosecution which in the view of Parliament is not justified/warranted. Further, one must not loose sight of the fact that the benefit under the KVSS 1998 is a deviation from the strict application of tax laws. Thus the challenge on the above ground is also not sustainable.
The next contention urged by the Petitioner was that a person against whom prosecution has been launched for a minor crime as provided under Chapter XVII of the Indian Penal Code is
excluded by virtue of Section 95 (iii) of the KVSS 1998 from its benefit while a person against whom prosecution is lodged for serious crimes like murder etc., is not deprived benefit of KVSS 1998. This itself is evidence of the arbitrary nature of the exclusion having no nexus to the objective of the Act which is undisputedly to collect Revenue. As pointed out above, the policy of the Act as set out in the affidavit in reply filed by the State was to exclude those classes of persons who were involved in Socio-economic crimes having obtained income / property by illegal means. The State is prosecuting those persons under the criminal law of land for having acquired / obtained income / property by committing breaches of the various Act referred to therein. The classification is restricted only to those persons who are involved in crimes which in Parliament’s experience/ wisdom could have lead to generation of income/ wealth/ property. It is these classes of persons who have been excluded. This classification certainly has a nexus to the objective of the Act namely – recovering revenue which has been clogged and the income which is being offered to tax under the KVSS 1998 is not shadowed by a likelihood of the same having arisen from socio-economic crimes for which prosecution has been launched as provided in Section 95(iii) of the Act. Serious crimes like murder etc per se according to the wisdom of Parliament, may have no nexus to the generation of income. In any case at the very highest, the grievance of the Petitioner appears to be that the classification is not proper and there is room for more classification by including into those categories listed in Section 95(iii) of the Act, those who have been left out. Grievance made is one of under inclusion.
21. The issue of under inclusion in tax litigation arose before the Supreme Court in M/s.
Murthy Match Works and Others v/s. Assistant Collector of Central Excise7 for consideration. The challenge was that while issuing an exemption notification issued under the Central Excise Rule there was a failure to make further classification between larger and smaller manufacturers of match boxes. The Court held that it is a settled position that merely because there is a room for more classification, the provisions cannot be declared unconstitutional. The Apex Court in paragraphs 20 and 22 held as under:
“20:-In the present case, a pertinent principle of differentiation , which is visibly linked to productive process, has been adopted in the broad classification of power-users and manual manufacturers. It is irrational to castigate this basis as unreal. Indeed, the soundness of this distinction is not denied. The challenge is founded on the failure to mini-classify between large and small sections of [7 1974 (4) SCC 428] manual match manufacturers. But ours is not to reason why that being a policy decision of Government dependent on pragmatic wisdom playing on imponderable forces at work. Our jurisdiction halts where the constitutional touchstone of a rational differentia having a just relation to the legislative end to revenue raising is satisfied. Gratuitous judicial advice on the socialist direction of fiscal policy is de trop. We desist from that enterprise and leave the Petitioners and men of his ilk to seek other democratic remedies in that behalf, it being beyond our area normally to demolish the tax structure because micro classification among a large group has not been done by the State. Absolute justice to every producer is self-defeating adventure for any administration and general direction, not minute classification, is all that can be attempted. For these reasons we find ourselves in agreement with the High Court in its refusal to strike down the notification under Section 3 of the Central Excise and Salt Act, 1944.
22:-It is sound law that refusal to make rational classification where grossly dissimilar subjects are treated by the law violates the mandate of Article 14. Even so, where the limited classification adopted in the present case is based upon a relevant differentia which has a nexus to the legislative end of taxation, the Court cannot strike down the law on the score that there is room for further classification. Refusal to classify is one thing and it bears on constitutionality, not launching on micro-classification to work out perfect justice is left to executive expediency and legislative judgment and not for forensic wisdom. (American Jurisprudence 2d : vol. 16, para 496):
“The relationship between the legislative and judicial departments of Government in the determination of the validity of classification is well settled . . . . the authorities state with unanimity that the question a judicial question except for the purpose of determining in any given situation, whether the legislative action is clearly unreasonable. The legislative classification is subject to judicial revision only to the extent of seeing that it is founded on real distinctions in the subjects classified, and not on artificial or irrelevant ones used for the purpose of evading the constitutional prohibition.
In a classification for governmental purposes there cannot be an exact exclusion or inclusion of persons and things. The constitutional command for a state to afford equal protection of the law sets a goal not attainable by the invention and application of a precise formula. Classification in law, as in the other departments or knowledge or practice, is the grouping of things in speculation or practice because they agree with one another in certain particulars, and differ from other things in those particulars. It is almost impossible in some matters to foresee and provide for every imaginable and exceptional case, and a Legislature ought not to be required to do so at the risk of having its legislation declared void, although appropriate and proper upon the general subject upon which such legislation is statute makes an unreasonable and unfounded general classification, and thereby denies to any person the equal protection of the laws. Hence, a large latitude is allowed to the State for classification upon any reasonable basis, and what is reasonable is a question of practical details into which fiction cannot enter.â€
(emphasis supplied)
The dicta quoted above is clear. It is not possible for us to declare Section 95(iii) void on the ground of under inclusion. The non inclusion of others in the exclusionary Section 95(iii) of the KVSS 1998 will not render the classification done by the parliament as arbitrary or violative of Article 14 of the Constitution of India.
It was next contended by the Petitioner that in terms of Section 95 (iii) of the KVSS 1998, a person who has any civil dispute in a Court of law is excluded from the benefit of KVSS 1998. This on account of the fact that Section 95(iii) of the KVSS 1998 inter alia excludes a class of persons against whom proceedings for enforcement of civil liabilities has been instituted. The Petitioner has completely mis-understood Section 95(iii) of the KVSS 1998 which after excluding a class of person who are being prosecuted for offences under the special chapter of Indian Penal Code, FERA, TADA, Narcotic Drugs and Psychotropic Substances Act, 1985 and Prevention of Corruption Act, 1998 further excludes persons against whom proceedings has been launched for the enforcement of any civil liabilities on or before the filing of the declaration under the KVSS 1998. This exclusion is in respect of persons who have not honouerd the verdict of a civil court against them leading to filing of prosecution for the enforcement of the civil liabilities. This also is a class of persons which the parliament does not wish to extend the offer of KVSS 1998. This in the Parliament’s wisdom is not to make available the benefit of KVSS 1998 to those who do not honour the orders of civil court leading to institution of criminal prosecution. This certainly has nexus to the object of KVSS 1998 to settle disputes with regard to those who are honest and are not under any shadow of being persons whose methods of earning income are a matter of grave doubt as prosecutions have been launched against them. It does not include within its scope, any civil suit pending between two independent parties, as sought to be contented by the Petitioner.
In any case, so far as the Petitioner is concerned, he is not being excluded from the benefit of KVSS 1998 for an institution of prosecution for the enforcement of the civil liabilities. The petitioner admittedly at the time when he filed his declaration was being prosecuted for offences of cheating under Chapter XVII of the Indian Penal Code. So far as the Petitioner is concerned, he does not fall within the class of the persons against whom proceedings have been instituted for enforcement of any civil liabilities. Therefore, only a person who has been excluded from the benefit of KVSS 1998 on the ground of prosecution for the enforcement of the civil liabilities approaches the Court, would the issue arise for our examination. This is neither a public interest litigation nor is the petitioner in any manner affected by the class of persons being excluded from the benefit of KVSS 1998 for the reason of prosecution being launched for enforcement of the civil liabilities. Furthermore, the Petitioner is seeking a relief under the KVSS 1998 and at the same time, he is calling upon the Court to strike down Section 95 thereof, which will result in all persons being entitled to the KVSS 1998. This will lead to the entire scheme being unworkable. The relief prayed for under the Scheme and the argument of the Petitioner seeking to destroy the entire scheme, is difficult to reconcile. The Petitioner was charged for offence of cheating and his class has been rightly excluded from the benefit of the Scheme. Nevertheless we have examined the challenge and not found any merit in it.
Thus, the challenge to Section 95 of the KVSS 1998 mounted by the Petitioner must fail. Accordingly, Petition dismissed. No order as to costs.
[Citation : 380 ITR 60]
